Q3 Productivity & Costs: Preliminary Reading Moves Higher

November 2, 2017
Bottom Line: Productivity rose more than expected in the preliminary 3rd Quarter reading. While hiring has been strong, it has decelerated modestly in the last year, which, in turn, meant productivity ticked higher as total output in the economy continued to grow. Productivity has grown at a 1.5% annual rate over the last 4 quarters, faster than the 0.7% pace of the last 5 years. Unit labor costs, meanwhile, remained quite low, up just 1.0% annualized over the last eight quarters. Nonfarm Business Productivity ROSE by 3.0% in 2017 Q3, compared with market expectations for an increase of 2.6%. Productivity is now 1.5% ABOVE its year ago level; as recently as 2009 Q4, productivity was a robust 5.6% ABOVE its year earlier level. This is a typical post-recession pattern with productivity soaring in the late recession/early recovery period before settling back to a more sustainable pace as the expansion lengthens. Output ROSE by 3.8%, in line with the Q3 increase in nonfarm business GDP. With its recent gains, output is now 2.9% ABOVE its year ago level. Hours Worked ROSE by 0.8% because of the solid gains in private employment and a steady workweek. Hours worked are now 1.4% ABOVE their year ago level. Compensation ROSE by 3.5% and is now 1.4% ABOVE its year ago level. Quarterly compensation has been quite volatile recently but the trend has been flat to slightly higher over the past couple of years. Unit Labor Costs ROSE by 0.5%, compared with market expectations for an increase of 0.4%. Unit labor costs accelerated sharply between 2009 Q4 and 2011 Q1 to 2.8% and then decelerated and are still 0.1% BELOW their year ago level.